The Housing Crash is Still Happening Just Not as Fast as We Hoped

But one question a lot of people might be wondering right now is, whatever happened to the housing crash, Michael? You have been talking about the housing crash since 2022, because that's when I first started talking about it, and housing is still very expensive. Well, the housing crash is, in fact, still happening, guys, because there are multiple examples across the country where home prices are down double digits just in the last few years. And my definition of a housing crash has always been the same, which is that if home prices come down by 20% or more within a five-year time period, that constitutes a crash. Now, that hasn't happened nationwide, but it definitely has happened in different markets. And now Zillow's latest home price forecast confirms that the housing crash is still happening, but it's just not happening as fast as we all hoped. Every month, Zillow comes out with its new home price forecast for the next 12 months. And every single month of this year, they've essentially been downgrading their forecast to the point now where they're saying it's negative. Earlier at the beginning of this year, Zillow was saying that home prices were going to go up 1.5% this year or more. Now, fast forward to today, they're saying that it's going to go down by 0.2%. So the forecast went from being a positive 12-month forecast to a negative one. That's as of the May forecast, guys. In April, they were calling for a 0.1% increase. Back in March, they were calling for 0.5% increase. So you can see how they've just been whittling it down and whittling it down. And that's on the national level. Zillow's predicting prices to start falling now over the next 12 months, guys. Does that mean prices are going to fall everywhere? No. One interesting takeaway from Zillow's prediction though, is they say as long as national home price growth remains below US wage growth, which is currently up 3.5% per year, then the underlying fundamentals should continue to improve and make housing more affordable. And that would be a true statement, except Zillow's forgetting about one important economic factor, and that is inflation, guys. With the CPI running at 4.2% and the producer price index showing us that we're going to see further price increases on everything coming down the line, it doesn't matter if incomes are up 3.5% year over year and home prices are going down by 0.2%, because inflation alone makes it more unaffordable to actually buy. The wage increases are still falling behind inflation figures. And that is the largest problem that Zillow doesn't acknowledge here. But it does make housing more affordable. That is true. Because if inflation, let's just say it's at, let's say the real inflation number is at 8% year over year, which I think we could all probably agree with that. If you have home prices coming down by an average of 0.2% and real inflation at 8%, that means that housing is going to be about 8% more affordable in a year from now than it is right now. And that's a good thing, especially if wages are still growing. Even though wages are actually negative when you account for inflation as well, the fact that inflation is eating away at the nominal value of home prices is a good thing for buyers. I'm going to show you guys the list of where Zillow thinks that home prices are going to go up the most and where they're going to go down the most. I'll flash the biggest price increases predicted on the screen right now. And I'm always amazed when I see Rockford, Illinois, still at the top of that list, guys, at a 4.3% projected growth year over year. I'm from Belvidere, Illinois, which is the next town over. And to continuously see Rockford as the hottest housing market on Zillow's list year after year blows me away because the local economy there has been completely gutted. But somehow home prices continue to just go up there. I think a lot of people are moving to this area from Chicago and making remote money from the city, or they actually commute to the city because it's about a 90-minute one-way drive. So it is doable, even if it sucks. That's probably responsible for Rockford's home price growth. But one thing I want you to notice is these increases in prices are falling dramatically. A year ago, these predicted price increases were 9%, 10%, 8%, sometimes in the double-digit territory. Now, we're in the low fours, the low threes, the low twos as the future price appreciation, which shows us that we are coming to the end of the road, even for the strongest housing markets when it comes to price increases. And something else I want you to notice, I'm going to flash on the screen where Zillow thinks home prices are going to come down the most. This is arguably even more important because Zillow's predictions for price declines are basically all higher than where it predicts prices are going to go up. So they're talking 6.6% price declines, 6.1%, 5.3%, 4.8%, all higher than the largest price increases. And I have been predicting for a while now that this day would come, guys. I've been telling people that eventually these price increases are going to dry up in different parts of the country. Even the strongest housing markets are going to see some weakness at some point. But you always have to do your own individual research. I still remember one of my viewers the other day commented, I think her name was Amanda, and she asked about Chester County, Pennsylvania. And I looked up Chester County, Pennsylvania on the ReVenture app, and it showed that inventory in this area was still severely depressed compared to where it was pre-pandemic. In 2019, Chester County, Pennsylvania had 1,700 homes for sale. Fast forward to today, it's only 700. So it is far below the traditional inventory that is available. And so because of that, prices in the area are still going up. And another thing that makes it so that prices are still going up is that the percentage of a home buyer's monthly income for the median house payment in Chester County is still relatively affordable at about 33%. It hasn't gone into the territory of complete unaffordability yet. So if you live in a market like that, you can still expect home prices to continue rising for the foreseeable future, guys. When I talk about the housing crash, I don't mean that it's going to crash everywhere all at once. I never meant that. But a lot of people interpret it that way. And they think that it's never going to happen just because it's not happening in their area. But what that really means is it's just not happening yet. Doesn't mean that it can't happen in the future. And Zillow's most recent home price forecast proves that.